Professor Charles Tiefer’s Legal Opinion on small business contracting fraudhttp://www.asbl.com/documents/2013_Tiefer_Opinion.pdfSummary: Opinions on: (1) Large Businesses wrongfully hold SBA contractors both by acquiring small contractors
(2) and by contracting with formerly small businesses after their graduation.
(3) The SBA wrongfully reduces the scope of contracting counted in applying the 23% small business goal.

“The bottom line is that there is a real societal cost when ineligible companies improperly profit from preferential contracting through fraud and illegal conduct….
This fraud thwarts congressional intent behind these programs and deprives legitimate small businesses of contracting opportunities.”

“Thus, the problem is that SBA and the contracting agency are failing in their duties to police the arrangements made by small businesses with large businesses and/or after graduation.
SBA and the agency are failing to demand recertifications, and failing to take action in the absence of valid certifications of continuing small size.”

“The figure of $1.1 trillion as the total amount that should be used for the 23% goal has been put forth in the media. Without breaking down the specific numbers,
it should be evident that if all these categories currently excluded were included, the total funding for which to apply that 23% goal could reach that figure.”

May Oversight Report | Congressional Oversight Panel | The Small Business Credit Crunch and the Impact of TARP | May 13, 2010http://cop.senate.gov/documents/cop-051310-report.pdfSummary: Small businesses have long been an engine of economic growth and job
creation in America. More than 99 percent of American businesses employ 500 or fewer employees,
and together these companies employ half of the private workforce and create two out of every
three new jobs. If the Troubled Asset Relief Program (TARP) is to meet its Congressional mandate
to promote growth and create jobs, then it clearly must address the needs of small businesses.

"To the extent that contraction in small business lending reflects a shortfall of demand
rather than of supply, any supply-side solution will fail to gain traction."

"Because small businesses play such a critical role in the American economy, there is
little doubt that they must be a part of any sustainable recovery. It remains unclear,
however, whether Treasury's programs can or will play a major role in putting small
businesses on the path to growth."

"Supply-side solutions that rely on bank balance sheets, such as the CPP [Capital Purchase Program]
and the SBLF [Small Business Lending Fund], may not increase lending. Even if Treasury succeeds in
increasing the supply of credit, its efforts may still come to naught if the demand for credit fails to keep pace."

“The largest TARP program, the Capital Purchase Program (CPP), provided hundreds of billions of
dollars in new capital to banks, but Treasury did not require recipients to use the money to improve
credit access. In fact, after receiving the money, most recipients decreased their lending.”

GAO-10-425 | Report to the Chairwoman, Committee on Small Business, House of Representatives | 8(a) PROGRAM: Fourteen Ineligible Firms Received $325 Million in Sole-Source and Set-Aside Contracts | March 2010http://www.gao.gov/new.items/d10425.pdfSummary: GAO identified $325 million in set-aside and sole-source contracts
given to firms not eligible for the 8(a) program. Most were obtained through fraudulent schemes.
In the 14 cases GAO investigated, numerous instances were found where 8(a) firm presidents made
false statements, such as underreporting income or assets, to either qualify for the program or
retain certification.

"In some cases, SBA did not detect the false statements and misrepresentations made
by certified firms. In others, SBA became aware of the firms' ineligibility but failed to take action."

"Certification of GAO's bogus firm shows vulnerabilities in the process such as the lack of
any face to face contact that could allow ineligible individuals or pass through companies to
enter the program. Although we were unable to determine whether all 14 cases were ineligible
at application, these cases show substantial vulnerabilities in SBA's monitoring of eligibility
for individuals and firms already in the program. The lack of a consistent enforcement strategy
or any real consequences for fraud and abuse is a further weakness in SBA's fraud prevention program."

SBA OIG Report 10-08 | SBA'S EFFORTS TO IMPROVE THE QUALITY OF ACQUISITION DATA IN THE FEDERAL PROCUREMENT DATA SYSTEM | February 26, 2010http://www.sba.gov/idc/groups/public/documents/sba_homepage/oig_report_10-08.pdfSummary: This report presents the results of an audit of the quality of SBA' s
acquisition data in the Federal Procurement Data System (FPDS). Based on data quality concerns
raised by the Government Accountability Office (GAO), in 2007 the Office of Management and Budget
(OMB) issued a directive requiring Federal agencies to annually certify to the accuracy of procurement
data reported in FPDS.

"Since SBA contract actions in FPDS contain information not matching the data in
the contract files, inaccurate information is being made available to Congress and
the public on SBA contracting activities, including potential Recovery Act actions.
Also, SBA's Goaling Report may contain inaccurate information concerning the extent
to which the Agency met its small business goals."

"We found that SBA certified to the accuracy of its FY 2008 contracting data, although
92 percent of the contract actions in our sample contained one or more inaccurate or
incomplete data elements in FPDS. While SBA had developed a data quality plan for FY
2008, it did not fully implement the plan, which contributed to the errors identified."

"Finally, while the accuracy of some data elements improved in FY 2009, overall there
was a higher rate of error in the FY 2009 data. Approximately 97 percent of the contract
actions in our sample contained one or more inaccurate or incomplete data elements, indicating
again that SBA contracting personnel were not properly reviewing data entries."

DHS OIG-10-54 | CBP Faces Challenges in Achieving Its Goals for Small Business Participation in Secure Border Initiative Network | February 2010http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_10-54_Feb10.pdfSummary: This report presents the results of Department of Homeland Security's Office of Inspector General's review to determine whether
U.S. Customs and Border Protection's Secure Border Initiative Network contracting strategies will provide access to small business for the term of the contract.
It is based on interviews with CBP employees, direct observations, and a review of applicable documents.

"The prime contractor Boeing, has implemented initiatives to improve small business
participation in Secure Border Initiative Network subcontracts to achieve its subcontracting
goals. Despite these initiatives, the contractor has not achieved the established goals for
small business participation since the reporting period ended September 2007."

"Nonetheless, overall small business participation has not met established goals."

GAO-10-255T | Testimony Before the Committee on Small Business, House of Representative | SERVICE-DISABLED
VETERAN-OWNED SMALL BUSINESS PROGRAM | November 19,2009http://www.gao.gov/new.items/d10255t.pdfSummary: Statement of Gregory D. Kutz, Managing Director Forensic Audits and Special
Investigations. GAO found that the SDVOSB program is vulnerable to fraud and abuse, which could result in
legitimate service-disabled veterans' firms losing contracts to ineligible firms.

"Since the SDVOSB program began, the government has not met its annual mandated goal of 3 percent."

"Fraud and abuse in the SDVOSB program allowed ineligible firms to improperly receive millions
of dollars in set-aside and sole-source SDVOSB contracts, potentially denying legitimate service-disabled
veterans and their firms the benefits of this program."

"In the case of a pass-through, a firm or joint venture lists a service-disabled veteran
as the majority owner, but contrary to program requirements, all work is performed and managed
by a non-service-disabled person or a separate firm."

GAO-10-108 | SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PROGRAM - Case Studies Show
Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts | October 2009http://www.gao.gov/new.items/d10108.pdfSummary: GAO found that the SDVOSB program is vulnerable to fraud and abuse,
which could result in legitimate service-disabled veterans' firms losing contracts to ineligible firms.

"By failing to hold firms accountable, SBA and contracting agencies have sent a message to
the contracting community that there is no punishment or consequences for committing fraud."

"The 10 case study firms identified in this report received approximately $100 million
from SDVOSB contracts through fraud or abuse of the program, or both. For example, contracts
for Hurricane Katrina trailer maintenance were awarded to a firm whose owner was not a
service-disabled veteran. GAO also found SDVOSB companies used as a pass-through for large,
sometimes multinational corporations."

"GAO found that the government does not have effective fraud-prevention controls in place
for the SDVOSB program. Specifically, SBA and agencies awarding SDVOSB contracts do not have
processes in place to validate a firm's eligibility for the program prior to bid submission."

"Step 6: Give maximum practicable consideration to small businesses, including minority
businesses, and businesses owned by women and veterans."

"Small businesses provide creativity, innovation, and technical expertise to support a
wide range of agency requirements at good prices, but are sometimes overlooked as suppliers."

"…requirements were grouped inconsistent with the way services are commonly performed or
provided by industry, or otherwise bundled to make it difficult for small businesses to compete."

SBA OIG Report 10-02 | FISCAL YEAR 2010 REPORT ON THE MOST SERIOUS MANAGEMENT AND PERFORMACE CHALLENGES FACING THE SMALL BUSINESS ADMINISTRATION | October 16, 2009http://www.sba.gov/idc/groups/public/documents/sba_homepage/oig_reports_tmc_fy10.pdfSummary: This report represents the OIG's current assessment of Agency programs
and/or activities that pose significant risks, including those that are particularly vulnerable to
fraud, waste, error, mismanagement, or inefficiencies. The number one issue is that procurement flaws
allow large firms to obtain small business awards and agencies to count contracts performed by large firms
towards their small business goals.

"Office of Inspector General (OIG) audits and other governmental studies have shown widespread
misreporting by procuring agencies; many contract awards recorded as going to small firms have actually
been performed by larger companies."

"SBA needs to do more to ensure that contracting personnel are adequately trained on small business
procurement procedures and are reviewing ORCA data prior to awarding contracts."

"The Agency also needs to address a loophole within General Services Administration Multiple Awards Schedule
(MAS) contracts that contain multiple industrial codes. Currently, a company awarded such a contract can
identify itself as small on individual task orders awarded under that contract even though it does not meet the
size criteria for the applicable task. Thus, agencies may obtain small business credit for using a firm classified
as small, when the firm is not small for specific orders under such a MAS contract."

GAO-09-1032T | Testimony Before the Subcommittee on Contracting Oversight, Committee on Homeland
Security and Governmental Affairs, U.S. Senate | FEDERAL CONTRACTING - Observations on the Government’s Contracting
Data Systems | September 29, 2009http://www.gao.gov/new.items/d091032t.pdfSummary: Statement of William T. Woods, Director Acquisition and Sourcing Management.
GAO's testimony, which is based on prior reports, describes three governmentwide contracting data systems
and the weaknesses GAO has identified with these systems.

Senate Commerce Committee Report | Cases of SBIR Waste, Fraud and Abuse | August 2009http://commerce.senate.gov/public/_files/8609StaffAnalysisExhibit2.pdfSummary: In the course of investigating the NETECH case and the SBIR program, Commerce Committee staff
learned of other instances in which SBIR awardees defrauded the government. Using online searches and case files produced
by the Inspectors General of NASA and NSF, Committee staff has collected 29 cases of SBIR fraud between 1990 and the present.
These cases involved more than 300 SBIR or STTR contracts valued at more than $100 million dollars. Information about these
cases is presented in a table in the following pages.

“…these cases provide important information about the features of the SBIR program that are most vulnerable to waste, fraud, and abuse.”

"When he was asked about SBIR fraud, NSF Deputy Inspector General, Philip Sunshine, told the Committee that,
'compared to other programs at the agency, there is more fraud in the SBIR program than any other program.' "

"Companies have misrepresented the qualifications of their researchers, presented plagiarized data as their own,
and forged signatures on proposals in order to win grants or contracts. As a general matter, the awarding agencies rely
on companies' self-certification that the information in their proposals is accurate and truthful. A federal appeals court
recently noted that 'the DOD generally does not verify all of the information submitted in a proposal, and it depends heavily
on the integrity of SBIR applicants.'"

United States Senate Committee on Homeland Security & Governmental Affairs | NEW INFORMATION ABOUT CONTRACTING PREFERENCES FOR ALASKA NATIVE CORPORATIONS (Part 1 and 2) | July 16, 2009http://hsgac.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=A791908F-1E69-4ECE-9C79-0E334AA3B451http://mccaskill.senate.gov/pdf/071509/ANC.pdfSummary: Examines concerns relating to the award of contracts to Alaska Native Corporations (ANCs)
through the Small Business Administration's 8(a) program. The preference given to Alaska Native Corporations in
federal procurement was intended to provide economic opportunities for impoverished Alaskan communities. In recent years,
however, critics have identified these preferences as a vehicle for avoiding competition and passing work through to large,
non-Native contractors.

"The analysis finds that Alaska Native Corporations are multi-million or billion dollar corporations that are
now among the largest federal contractors. Although ANCs provide some benefits to their shareholders, those benefits
may not be in proportion to the potential for waste, fraud, and abuse created by the ANCs' contracting preferences."

"Alaska Native Corporations are big businesses. The majority of the Alaska Native Corporations surveyed by the
Subcommittee exceed the size requirements applicable to other 8(a) companies. 11 out of the 19 companies - Afognak,
Ahtna, Arctic Slope, Bristol Bay, Chenega, Chugach, the Cook Inlet Region, Inc. (CIRI), Doyon, Koniag, NANA, and Sealaska -
have had annual revenues higher than the Small Business Administration's limit since 2002."

"In 2008, approximately 80% of the contract dollars awarded to ANCs was performed outside of Alaska. In 2004, 2006,
2007, and 2008, more contracts were performed in Virginia than Alaska."

SBA OIG Report 09-02 | FISCAL YEAR 2009 REPORT ON THE MOST SERIOUS MANAGEMENT AND
PERFORMACE CHALLENGES FACING THE SMALL BUSINESS ADMINISTRATION | October 20, 2008http://www.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy09.pdfSummary: This report represents the OIG's current assessment of Agency
programs and/or activities that pose significant risks, including those that are particularly
vulnerable to fraud, waste, error, mismanagement, or inefficiencies. The number one issue is
that procurement flaws allow large firms to obtain small business awards and agencies to count
contracts performed by large firms towards their small business goals.

"Office of Inspector General (OIG) audits and other governmental
studies have shown widespread misreporting by procuring agencies; many
contract awards recorded as going to small firms have actually been performed
by larger companies."

"While some contractors may misrepresent or erroneously calculate their size,
most incorrect reporting results from errors made by government contracting personnel.
Noted errors include acceptance of questionable size self-certifications and misapplication
of small business contracting rules."

"…the Small Business Administration (SBA) should strive to ensure that only small
firms obtain small business awards and that procuring agencies accurately report
contracts awarded to small businesses when representing its progress in meeting small
business contracting goals."

USVentCap061009r1 | RIGHT-SIZING THE U.S.
VENTURE CAPITAL INDUSTRY | June 10, 2009http://www.kauffman.org/uploadedFiles/USVentCap061009r1.pdfSummary: The report evaluated
venture financing among companies on the Inc. 500
list of the fastest-growing private companies.
Only approximately 16 percent of the roughly 900
unique companies on the list from 1997-2007 had
venture capital backing. The report also noted
that only a tiny percentage (less than 1 percent)
of the estimated 600,000 new employer businesses
created in the United States every year obtain
venture capital financing.

"We recently studied the prevalence of
venture capital financing among companies
on the Inc. 500 list of the fastest-growing
private companies in the United States. Looking
across ten years of that list-roughly 900
unique companies from 1997-2007-we found
that approximately 16 percent of the companies
had venture capital backing. In other words,
even among the fastest growing and most successful
companies in the U.S., less than one-in-five
companies had venture investors."

GAO-09-440 | HUBZONE PROGRAM - FRAUD AND
ABUSE IDENTIFIED IN FOUR METROPOLITAN AREAS | March 25, 2009http://www.asbl.com/documentlibrary.htmlSummary: GAO found that fraud
and abuse in the HUBZone program extends beyond
the Washington, D.C., area. GAO identified 19 firms
in Texas, Alabama, and California participating
in the HUBZone program that clearly do not meet
program requirements (i.e., principal office location
or percentage of employees in HUBZone and subcontracting
limitations).

" Our work on the HUBZone program to date
has shown that numerous ineligible firms
have taken advantage of the opportunity to
commit fraud against the federal government."

"SBA's failure to promptly remove firms
from the HUBZone program and examine
some of the most egregious cases from
GAO's July 2008 testimony has resulted
in an additional $7.2 million in HUBZone
obligations and about $25 million in
HUBZone contracts to these firms. For
example, a construction firm from the
July 2008 testimony admitted that it
did not meet HUBZone requirements and
was featured in several national publications
by name. It has continually represented
itself as HUBZone certified and has received
$2 million in HUBZone obligations and
a $23 million HUBZone setaside contract
since the July 2008 testimony."

"Of the 19 firms that did not meet
HUBZone eligibility requirements, we
found that all of them continued to represent
themselves as eligible HUBZone interests
to SBA. Because the 19 case examples
clearly are not eligible, we consider
each firm's continued representation
indicative of fraud and/or abuse related
to this program."

"To date, other than the firms identified
by our prior investigation, the SBA program
office has never referred any firms for
debarment and/or suspension proceedings
based on their findings from their program
eligibility reviews. By failing to hold
firms accountable, SBA has sent a message
to the contracting community that there
is no punishment or consequences for
committing fraud or abusing the intent
of the HUBZone program."

SBA OIG Report 08-01 | FISCAL YEAR 2008 REPORT ON THE MOST SERIOUS MANAGEMENT AND PERFORMACE CHALLENGES FACING THE SMALL BUSINESS ADMINISTRATION | October 16, 2007http://www.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy08.pdfSummary: This report represents the OIG's current assessment of Agency programs and/or
activities that pose significant risks, including those that are particularly vulnerable to fraud, waste,
error, mismanagement, or inefficiencies. The number one issue is that procurement flaws allow large firms
to obtain small business awards and agencies to count contracts performed by large firms towards their small business goals.

"Large companies improperly obtain small business contracts due to a variety of problems.
Some contractors obtain small business contracts for which they are not eligible by misrepresenting
their size or by not diligently verifying whether they meet size criteria. In other cases, improper
awards result from errors by contracting personnel, such as accepting questionable size self certifications
or possible unfamiliarity with small business contracting procedures."

"SBA needs to do more to promote contractor accuracy, ensure that government contracting personnel
receive adequate training on small business procurement procedures, and encourage greater accuracy in
Federal agency small business contracting reports."

SBA OIG Report 07-01 | FISCAL YEAR 2007 REPORT ON THE MOST SERIOUS MANAGEMENT AND PERFORMACE CHALLENGES FACING THE SMALL BUSINESS ADMINISTRATION | October 16, 2006http://www.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy07.pdfSummary: This report represents the OIG's current assessment of Agency programs
and/or activities that pose significant risks, including those that are particularly vulnerable
to fraud, waste, error, mismanagement, or inefficiencies. The number one issue is that procurement
flaws allow large firms to obtain small business awards and agencies to count contracts performed
by large firms towards their small business goals.

"SBA also needs to work to close regulatory loopholes that allow agencies to take credit
for meeting their small business procurement goals even though contracts are performed by large
firms. For example, multiple award contracts, such as the General Services Administration Multiple
Awards Schedule (MAS) Program and Government Wide Acquisition Contracts (GWACs), are structured so
that a company's size is only relevant when admitted to the initial contract, not for the task orders
issued under the contract. Task orders can be issued under these contracts for many years after the contract is awarded."

"In 2003, SBA proposed a regulation requiring companies to certify as to their size on an
annual basis, but it now appears that a rule with a one-year certification requirement will not
be issued. If this is the case, the OIG will reevaluate the matter to assess whether the Agency
should take other steps to address this problem."

"The Agency also needs to address another loophole with MAS contracts that contain multiple
industrial codes. In being awarded such a contract, a company can identify itself as small even
though it does not meet the size criteria for every industrial code. Thus, agencies may obtain
small business credit for using a firm classified as small even if the firm is not small for the
specific goods or services procured through a particular task order under such a MAS contract."

SBA OIG Report 06-02 | FISCAL YEAR 2006 REPORT ON THE MOST SERIOUS MANAGEMENT AND PERFORMACE CHALLENGES FACING THE SMALL BUSINESS ADMINISTRATION | October 14, 2005http://www.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy07.pdfSummary: This report represents the OIG's current assessment of Agency programs and/or
activities that pose significant risks, including those that are particularly vulnerable to fraud, waste,
error, mismanagement, or inefficiencies. The number one issue is that procurement flaws allow large firms
to obtain small business awards and agencies to count contracts performed by large firms towards their small business goals.

"This year's report contains one new Challenge-Challenge #1-that states that 'Flaws in the procurement
process allow large firms to receive small business awards and agencies to receive small business credit
for contracts performed by large firms.'"

"Studies by the Government Accountability Office (GAO), SBA's Office of Inspector General (OIG), and
SBA's Office of Advocacy found that agencies are counting contracts performed by large firms towards their
small business procurement goals."

"Large companies also improperly receive small business contracts due to errors by contracting personnel."